Central banks globally have raised interest rates to help curb inflation (as explained in more detail here). In the Philippines, the Bangko Sentral ng Pilipinas (BSP) has been hiking the overnight reverse repurchase rates (RRP) to bring inflation back to the target range of 2% to 4% in the medium-term.

Aside from controlling inflation, another purpose of these hikes is to ensure orderly market conditions and to manage the volatility of exchange rates (without necessarily setting the exchange rate itself) since depreciation is an inflationary concern.

Like many other central banks, the United States Federal Reserve (Fed) is hiking the Federal Funds Rate (FFR) to quell inflation. However, the Fed has been more aggressive than the BSP; the former has so far hiked key rates by 300 bps (or by 3.0%) since January, while the latter has hiked by only 225 bps.

Policy rate differentials

The BSP appears to be taking care of maintaining a comfortable policy differential between the RRP and the US Fed Funds Rate (FFR); not doing so would mean the possibility of capital flight due to higher rates of return for US investments, as these are seen as a safe haven. When this happens, the peso would depreciate further, and this would add to inflationary pressures.

As stated by BSP Governor Felipe Medalla in a September interview with Bloomberg; “Clearly the Fed’s policies have affected our choices. We don’t want to match the Fed but, at the same time, we have to respond.” This is because the BSP needs to ensure price stability without damaging the growth of the country—a tough balancing act.

The table above also appears to show that the BSP is comfortable with a 75-basis point policy differential, at the very least. Note that on July 14, the BSP announced a surprising off-cycle rate hike by 75 bps, just a little after US data showed that inflation spiked to 9.1% in June, which was the highest since 1981. This was also amid Fed officials signaling a hike of 75 bps in their July 27 meeting.

The off-cycle 75-bp hike announced early on was likely done to avoid parity between the RRP and the FFR, since there was no scheduled BSP Monetary Board meeting that month. This can also imply that the BSP would only allow a 75-bp differential at the very least.

Terminal rate outlook

At the Federal Open Market Committee (FOMC) meeting in September, the Fed funds terminal rate outlook rose to 4.4% in 2022 and 4.6% in 2023. This would put rates in the 4.25% to 4.5% range in 2022 and the 4.5% to 4.75% range in 2023, since the Fed sets its fund rate in quarter-point increments. Thus, additional FFR hikes totaling 125 bps in 2022 and 25 bps in 2023 are to be expected.

If we consider at least a 75-bp differential between the RRP and FFR, this will bring the RRP to a rate of 5.25% by the end of 2022, and 5.50% by the end of 2023. This entails a total of 100 bps of remaining RRP hikes in 2022 and 25 bps in 2023.

We expect the BSP to continue hiking rates because we forecast that inflation will peak around the 4th quarter of 2022. Risks to the calls would include a lower 3rd quarter GDP growth, a slower acceleration of inflation in the coming months, and the strengthening of the peso in the 4th quarter, which corresponds to the export season and the seasonal increase in OFW remittances.

All of these could translate to lower RRP hikes than estimated.

Of course, the hope is that the RRP hikes will enable the Philippines to reach the “price stability” summit at the soonest possible time, without doing substantial damage to the economy.

ANNA ISABELLE “BEA” LEJANO is a Research & Business Analytics Officer at Metrobank, in charge of the bank’s research on the macroeconomy and the banking industry. She obtained her Bachelor’s degree in Business Economics from the University of the Philippines School of Economics and is currently taking up her Master’s in Economics degree at the Ateneo de Manila University. She cannot function without coffee.

Extreme weather across the world’s major rice-producing countries – drought in China and massive monsoon floods in Pakistan – is threatening the global output of rice. The drought in China is expected to reduce production by 3 to 6 percent (around 6.7 million metric tons), while an estimated 10 percent (around 0.86 million metric tons) in rice production is projected for Pakistan. This means projected production for China would go down to 142.3 million MT, and 7.7 million MT for Pakistan, as seen in the table below.

Rice balance sheets of China and Pakistan

Droughts and floods are wreaking havoc on the world’s rice supply. This table shows the computation of Metrobank Research illustrating the impact of such events based on the USDA’s status quo projection for MY (marketing year) 2022/23, which reflects their latest grain and feed update reports. Rice balances apply a marketing year (or marketing season), which means values refer to a 12-month period that starts with the harvest of rice (which may or may not coincide with the calendar year).

Is it a cause for worry?

While the drought could potentially reduce China’s production to 142.3 million MT, it still maintains a rice stock of more than 100 million MT. The status quo projection for China’s ending stocks is at 109 million MT.

If the country taps its buffer stocks to fill all the gaps in the decline in production, its buffer stock would go down to 102.3 million MT – a sufficient volume still above 100 million MT.

Meanwhile, Pakistan, one of the major rice producers and an exporter to China (19.5% of China’s total imports, or 1.2 million MT), has suffered from massive floods and is estimated to have a decline in production by nearly a million tons (0.86 million MT) which could potentially bring down their exports to 4.14 million MT.

Nevertheless, this may still have a minimal impact on China due to its large buffer stock and the possibility of sourcing imports from other major rice-producing countries such as Cambodia and Myanmar, which are set to boost production and exports and whose main export market is China.

In the Philippines, rice imports as of September 2022 are majorly sourced from Vietnam (82.2%), with some volume from Myanmar (7.2%), Thailand (5%), Pakistan (5%), and others (0.6%). While the Philippines imports some from Pakistan, which is facing production losses from the floods, the Philippine’s other trading partners, Thailand and Myanmar, are aiming to further boost their exports.

Moreover, the Philippines’ buffer stock is also sufficient to cover any gap from imports for the year as the country is projected to have more than 4 million MT of ending stocks. Thus, supply-wise, there would be no major impact on meeting the country’s rice demand.

The real potential concern

The domestic price of rice (wholesale) has been stable at PHP 39-40/kilo since September 2019. Meanwhile, the imported price of rice (Vietnam and Thailand) remains significantly lower than the domestic wholesale price (both the baseline export price and the price with a 35-percent tariff).

However, while there has been no significant upward fluctuation in both countries’ rice export prices since February 2021, Thailand and Vietnam are jointly seeking to make their rice export prices more competitive to aid their farmers amid the rising cost of production.

Local rice prices may soon increase as Thailand and Vietnam increase their prices. (Source: Domestic Prices – PSA OpenStat, Export Prices – FAOStat)

Both countries are already in agreement to raise prices, which would certainly have an impact on countries dependent on them for rice imports like the Philippines. While the answers to “when” and “by how much” are still under negotiation, one thing is guaranteed: prices will rise. The Philippines should get ready for that.

INA CALABIO is a Research & Business Analytics Officer at Metrobank in charge of the bank’s research on industries. She loves OPM and you’ll occasionally find her at the front row at the gigs of her favorite bands.

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange (PSEi) fell by 0.87% week-on-week to close at 6,548.77 (down 57.23 points). The market initially rose on Monday as investors anticipated a relatively slower August 2022 US inflation print at 8.1% versus July 2022’s 8.5% year-on-year. However, sentiment was quick to turn, and the benchmark index posted losses for the rest of the week due to some profit taking and as the coupon rate rose to 6.75% for the Bureau of the Treasury’s auction of PHP 35 billion worth of 10-year bonds. Investors also considered the higher-than-expected August 2022 US inflation print at 8.3% and the further weakening of the peso against the greenback, closing at another record-low at PHP 57.43 on Friday.

Top index performers were PLDT (TEL) which was up 5.8%, Globe Telecom (GLO) up 3.0%, and Ayala Land Inc. (ALI) up 2.7%. Index laggards were Monde Nissin Corporation (MONDE) down 13.8%, Puregold Price Club Inc. (PGOLD) down 6.8%, and Universal Robina Corporation (URC) down 5.6%. The index breadth was negative with 12 gainers versus 18 losers. The average daily turnover value was PHP 6.8 billion. Foreigners were net buyers by PHP 1.1 billion.

WHAT TO EXPECT THIS WEEK

We expect the PSEi to trade sideways as investors will be closely monitoring the BSP US Fed’s interest rate decisions on Thursday. The BSP is expected to hike rates by 50 basis points (bps) while the US Fed is expected to hike by 75 bps. Moreover, investors will digest the opposing impact of fare hikes and oil price rollbacks on inflation trends. On one hand, the Land Transportation Franchising and Regulatory Board (LTFRB) approved the provisional fare increase across public transportation for jeepneys, buses, taxis, and transport network vehicle services (TNVS). On the other, fuel price rollbacks of about PHP 4.0 – PHP 4.3 per liter of diesel, PHP 0.0 – PHP 0.3 per liter of gasoline, and PHP 4.4 – PHP 4.6 per liter of kerosene are also expted this week.

STOCK PICKS FOR THE WEEK

Ayala Land, Inc. (ALI) — BUY

ALI has managed to sustain its rebound and is now consolidating within the PHP 27.70 to PHP 30.00 range. We think that a break above PHP 30.00 will result in the stock retesting PHP 32.00/PHP 34.00. On the other hand, a break below PHP 27.50/ PHP 27.00 will likely result in the price slipping further towards PHP 26.00/PHP 25.00. While trading the current range is a good strategy, the volatile market environment suggests accumulating the stock once ALI breaks above its resistance level, which is the optimal way to trade the stock. Accumulating once ALI breaks above PHP 30.00 advisable. Set stop limit orders below PHP 28.00 and take profit at around PHP 34.00.

Max’s Group, Inc. (MAXS) — BUY

MAXS formed a pennant, a short-term bullish continuation pattern driven by better-than-expected second quarter 2022 and first half 2022 earnings. The price seems to be resuming a sharp rally after taking a brief pause. The measured price target after MAXS broke out of its bullish pennant is PHP 6.60 to PHP 6.80 according to Technical Insight, our automated chart pattern recognition program. As for fundamentals, earnings performance will likely be sustained as the economy continues to reopen and as spending picks up in the fourth quarter of 2022 during the holiday season. Accumulating once MAXS breaks above PHP 5.82 (200-day moving average price) is advisable. Set stop loss orders below PHP 5.45. Take profit at around PHP 6.60 to PHP 6.80.

San Miguel Food and Beverages, Inc. (FB) — BUY

FB’s share price was sold down by 8.9% last Friday amid the effectivity of the FTSE rebalancing, wherein the company was deleted from the large caps index. The recent sell-off resulted in FB trading near its support/recent low of PHP 42.50. Traders can take advantage of the stock trading near its support given the favorable risk to reward trade. Short-term traders can accumulate at current prices and set cut loss below 5% to 7% of average cost.

PSEi TECHNICAL ANALYSIS

Resistance: 6,900/7,200

Support: 6,400/100-day moving average (now at 6,528.13)

It was the same story last week as the PSEi once again failed to sustain its positive start and sellers quickly came in for the rest of the week. We would like to reiterate that it is crucial for the market to stay above its 100-day moving average price for the ongoing bullish reversal to resume. It is important to take note that the bullish momentum is slowing down – the Moving Average Convergence Divergence (MACD) line is below the signal line. Setting trail stops at this technical structure is recommended.

TRADING PLAN

Slowly accumulate at current levels until the 100-day MA (currently at 6,528). Set tight stops below 6,400.

KEY DATA RELEASES

Thursday, September 22, 2022
– BSP interest rate decision (estimate is 50 bps)
– US FOMC interest rate decision (estimate is 75 bps)

Friday, September 23, 2022
– US S&P global preliminary manufacturing PMI (estimate is 51.3, while August 2022 figure is 51.5)

You probably think that inflation is now easing, given the latest inflation data.

Not necessarily. The minor 0.1% relief posted by Philippine inflation in August was driven by the slower acceleration of transport costs arising from lower gasoline and diesel prices, as global oil prices declined amid recession concerns fueled by high US inflation prints and the slow economic recovery of China. This was also due to curtailed growth in the prices of food and non-alcoholic beverages since prices of meat, fish, and vegetables declined.

August’s 6.3% inflation rate was only a tad bit lower than the prior month’s 6.4%, which was the highest in around four years, or since October 2018.

However, hold that sigh of relief. It is unlikely that inflation has already peaked. For one, only three out of 12 commodity groups actually had a slower acceleration in prices in August. The other nine (i.e., alcoholic beverages and tobacco, clothing and footwear, etc.) posted higher inflation rates.

In addition, second-round effects (which we wrote about here) are expected to drive inflation even higher. Minimum wage hikes were enforced in 14 regions all over the Philippines last June 2022, and some are to be implemented in tranches until January 2023. Another jeepney fare hike is also due this September, apart from the hike implemented in July. These effects are seen to further add to inflationary pressures in the coming months.

Moreover, continued hawkish signals from the Federal Reserve may further contribute to peso depreciation. The peso hit the PHP 57 level in early September. If the local currency continues to weaken, this will result in costlier imports, which will substantially contribute to inflation since the Philippines is an import-dependent country.

On top of this, the Philippines has been experiencing supply shortages in certain food commodities (e.g., salt, sugar, and onions) due to various structural complications and harsh weather, prompting the need to increase imports. A depreciated peso and a shortage in supply that raises import dependence are a bad combination and may thrust inflation upwards.

Note that a further decline in global oil prices may help alleviate inflation in the second half of 2022, amid renewed recession and diminished demand concerns in the US, as the Fed is seen to maintain or be even more aggressive in its rate hikes given high US inflation prints for August. However, this may be offset by a cold winter in the northern hemisphere accompanied by limited energy supply sources, which may push energy prices up.

The Organization of Petroleum Exporting Countries (OPEC) also stuck to its global oil demand forecast of an increase of 3.1 million barrels per day in 2022, despite concerns of a recession and lower demand. This has recently rallied oil prices.

Thus, we expect Philippine inflation to peak at around the 4th quarter of the year, driven by second-round effects passing on to food, transport, and other non-energy commodities, and aggressive Fed rate action which may lead to currency depreciation. Continued energy supply constraints, especially during the winter season, may also push energy prices up, which will likely cascade to the Philippines.

As the Department of Trade and Industry (DTI) said, “stock up on your Noche Buena items”. Inflation is probably here to stay.

ANNA ISABELLE “BEA” LEJANO is a Research & Business Analytics Officer at Metrobank, in charge of the bank’s research on the macroeconomy and the banking industry. She obtained her Bachelor’s degree in Business Economics from the University of the Philippines School of Economics and is currently taking up her Master’s in Economics degree at the Ateneo de Manila University. She cannot function without coffee.

The inflation print in August 2022 slightly eased to 6.3% due to the slower rise in transport costs and food and non-alcoholic beverages. Nevertheless, inflation rates in the succeeding months are seen to remain elevated as second-round effects, peso depreciation, and the upward pressure on global energy commodities remain.

With the USD/PHP exchange rate hitting 57 levels, further depreciation of the peso is anticipated as the US Fed signaled a continued hawkish policy stance, which will potentially push the Bangko Sentral ng Pilipinas (BSP) to raise interest rates to lend support to the peso. Considering these new developments, we note an upside bias for the overnight rates in 2022 and USD/PHP exchange rate for 2022 and 2023 in the forecast table below as we continue to monitor further movements:

For more information on the performance and outlook for several macroeconomic indicators, as well as local and global macroeconomic news, please download the full report here.

If you are a qualified individual buyer (QIB) looking for short-term placements with a decent yield pick-up, you may consider Hyundai Capital America (HCA), a global leader in automotive financing.

It has shown strong second quarter 2022 financial results, with core automotive segment posting a 58% increase in operating profits and 16% increase in revenues year-on-year.

This despite a global shortage in chips used in cars. The rosy results can be attributed to optimized net pricing, a shift toward SUVs, and favorable foreign exchange rates.

Hyundai Motor Group, its parent company, grew its global market share, excluding China, to 11% in 2021 vs 8% in 2010. Its US market share also grew from 7.5% in 2016 to 10% in 2021.

We also like that its credit rating is aligned with Hyundai Motor due to existing support agreements that have no expiry date. The parent is required to own 100% of HCA either directly or indirectly and make cash contributions to HCA if the stipulated credit metric (fixed charge coverage ratio) deteriorates below a specified level (1.10x)

Bond details

The peso’s recent slide is not a cause for alarm, at least for now, Armand Barlis, Head of Metrobank’s Foreign Exchange Division, said.

“Since the start of the year, the expectation has really been for a weaker peso,” he said.

“There are a lot of factors, such as the country’s growing fiscal and trade deficits, but the most important factor is the prospect of faster rate hikes in the US, which has led the US dollar to soar globally,” he added.

The peso, which has fallen by 12 percent since December 2021, is not alone in its plight.

The Japanese yen has lost around 20 percent in value against the US dollar, while the Korean won has slid around 17 percent in the same period. Other Asian currencies depreciated by around 8 percent on the average.

“So, it is really not so bad in terms of competitiveness, if we consider that all the other currencies have depreciated too,” said Barlis.

While he thinks the peso can depreciate a bit more above 57.00 in the near term, there are signs of stalling and should settle at around PHP 56.45 to PHP 56.50 to the dollar by the end of the year.

‘Imported inflation’

Equities 4 MIN READ

Stock Market Weekly: Local index may inch higher this week

There’s something to look forward to this week as investors anticipate fuel price rollbacks and await tamer US inflation numbers for August.

September 12, 2022By First Metro Securities Research

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) fell by 1.29% week-on-week to close at 6,606.00 (down 86.65 points). The market started the week in red as the US dollar appreciated vis-a-vis the Philippine peso and thin trade volumes were observed due to the US market remaining closed for Labor Day.

The local benchmark index posted gains on Tuesday as investors cheered the easing of the Consumer Price Index (CPI) for August 2022 at 6.3% (consensus estimate is 6.4%, while actual for July 2022 was 6.4%). The Philippine peso broke the PHP 57.0 per US dollar level midweek, which fueled inflation worries and prompted the Bangko Sentral ng Pilipinas (BSP) to deliver hawkish statements regarding the possibility of three 25-basis-point rate hikes for the rest of the year.

Losses were pared beginning Thursday amid the spillover of positive sentiment from Wall Street’s rebound and as the US dollar softened vs emerging market (EM) Asian currencies by the end of the week. Investors factored in the country’s unemployment rate falling to 5.2% in July 2022 (actual in June 2022 was 6%) and the country’s widening trade deficit for July 2022 to USD 5.93 billion (USD 5.87 billion in June 2022).

Top index performers were Universal Robina Corporation (URC) up 2.5%, Metro Pacific Investments Corporation (MPI) up 1.6%, and Metropolitan Bank & Trust Company (MBT) up 1.2%. Index laggards were AC Energy (ACEN) down 7.9%), JG Summit Holdings Inc. (JGS) down 7.5%), and Puregold Price Club Inc. (PGOLD) down 5.6%.

The index breadth was negative, with 9 gainers versus 20 losers. The average daily turnover value was PHP 4.4 billion. Foreigners were net buyers by PHP 1.2 billion.

WHAT TO EXPECT THIS WEEK

The benchmark index could inch higher this week following last week’s rally of global stocks and the anticipated fuel price rollbacks on Tuesday. Investors will also await the release of key US inflation data on Tuesday, a key indicator in the Fed’s next rate hike decision. Analysts are forecasting an 8% year-on-year growth in US CPI for August 2022, down from 8.5% in July 2022, yet still historically elevated.

STOCK PICKS FOR THE WEEK

Megawide Construction Corp. (MWIDE) — BUY

MWIDE and GMR Airports International BV (GAIBV) executed a share subscription and transfer agreement for Aboitiz InfraCapital (AIC) to acquire shares in GMR-Megawide Cebu Airport Corporation (GMCAC), the operator of Mactan-Cebu International Airport (MCIA). In our view, MWIDE was able to crystalize MCIA’s fair market value at more than triple of its cost base at PHP 15-billion transaction value (representing MWIDE’s 60% equity stake in MCIA). Notably, the transaction will unlock MWIDE’s resources to accelerate its infrastructure portfolio with the upfronted cash proceeds for capital recycling, and provide funds to de-lever and strengthen its balance sheet. Accumulating at current levels is advisable. Further accumulate on the break above PHP 5.70. Set stop limit orders below PHP 4.80.

MacroAsia Corp. (MAC) — BUY

MAC formed a flag, a short-term bullish continuation pattern. A bullish flag pattern occurs during a dynamic market rally, representing a brief pause as the market “catches its breath” before running off again in the same direction. The bullish price action was driven by the news that the company will provide operations and management services at the Sangley Airport. The measured price target after MAC broke out of its bullish flag is PHP 6.30 to PHP 6.50 (up 13.5%-17%), according to Technical Insight, our automated chart pattern recognition program, Accumulating at current levels is advisable. Set stop loss orders below PHP 5.10. Take profit at around PHP 6.30 to PHP 6.50.

Union Bank of the Philippines, Inc. (UBP) — BUY

UBP formed a triple bottom – a long-term bullish pattern. UBP broke above the said pattern due to the broader market rebound amid easing commodity prices. The measured price target after UBP broke out if its triple bottom pattern is PHP 95.00 to PHP 97.00 (higher by 9% – 11.5%), according to Technical Insight, our automated chart pattern recognition program. Looking at the fundamentals, UBP began accruing income from the Citi consumer portfolio since August 1, 2022. According to the company, key value drivers assumed in the transaction (such as customer growth and portfolio performance) are all trending ahead of expectations. UBP estimates pro-forma net interest margins (NIMs) at 5.5% (vs. 4.7% currently) given Citi’s NIMs at 13%. Consumer loans as a percentage of total loans are also expected to increase to 49% from 40% currently. Accumulating once UBP pulls back to PHP 86.00 to PHP 85.00 is advisable. Set stop limit orders below PHP 81.00 and take profits at around PHP 96.00 to PHP 97.00.

PSEi TECHNICAL ANALYSIS

Resistance: 6,900/7,200

Support: 6,400/6,600

The PSEi traded within a tight range of 6,550 to 6,700 and has managed to stay above its 100-day Moving Average (MA) last week. It is crucial for the market to stay above the 100-day MA for the ongoing bullish reversal to resume. It is worth taking note that the bullish momentum is slowing down with the moving average convergence divergence (MACD) line below the signal line. Setting trail stops at this technical structure is recommended.

TRADING PLAN

Slowly accumulate at current levels until the 100-day moving average (MA), which is currently at 6,548. Set tight stops below 6,400.

KEY DATA RELEASES

Tuesday, September 13, 2022
– US CPI year-on-year for August 2022 (consensus estimate was 8.1%, while actual CPI for July 2022 was 8.5%)

Thursday, September 15, 2022
– Overseas Filipino (OF) cash remittances year-on-year for July 2022 (consensus estimate is 2.7%, while the actual for June 2022 was 4.4%)

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Economy 3 MIN READ

Will oil prices and inflation remain elevated?

The recent decline in global oil prices amid high inflation prints are, among other things, caused by worries over a recession. However, such demand reduction can simply be offset by lowered supply, bringing prices back up again.

September 6, 2022By Anna Isabelle “Bea” Lejano

Since the onset of the conflict between Russia and Ukraine towards the end of February and the resulting supply chain restrictions and bottlenecks, major global oil benchmark prices such as Brent and West Texas Intermediate (WTI) Crude Oil Futures peaked in early March, both above the USD 120/barrel levels.

Since then, oil prices have become erratic as can be gleaned from the chart below. Of late, prices have substantially gone below the USD 100 level, leaving some to believe that the oil storm may have passed.

The dip of oil prices below the USD 100 level may be short-lived. (Source: Investing.com; data as of September 1, 2022)

However, the drop in oil prices back in July was mainly caused by worries over a possible recession and global economic slowdown fueled by high US inflation prints and rising COVID-19 cases in China, resulting in fears of a plunge in global demand.

Prices further dropped this August due to China’s slowdown represented by weak industrial production and retail sales growth and new lockdowns. There is a problem with that.

The Organization of the Petroleum Exporting Countries (OPEC+), through its leader, Saudi Arabia, said that the organization has the means to resolve falling oil prices—it can simply cut production.

This, combined with the still sizeable demand for oil (given that it is a necessity, especially this winter season), means that prices are highly likely to be on the upside, punctuated by blips here and there.

Mounting natural gas prices have already pushed some European countries like Germany to switch to oil to power their industries and supply for their heating needs in the winter. China could also eventually reopen and bounce back towards the second half of the year.

Moreover, oil withdrawals from the US Strategic Petroleum Reserve (SPR), the world’s biggest supply of emergency crude oil, are set to end in October 2022. All of these scenarios could drive oil prices up.

The only real solution to bring down oil prices is for other countries to step in and supply more oil to offset any OPEC+ cuts. At the moment, however, there are no swing players who would be willing to do that.

Philippine context

In 2021, 95.7% of the Philippines’ crude oil imports were from the Middle East; 64.2% came from Saudi Arabia while 16.06% was sourced from the United Arab Emirates (Department of Energy or DOE).

The DOE usually monitors Dubai crude, which is used by different Asian countries and is also one of the major crude oil benchmarks aside from Brent and WTI. However, they are generally correlated with each other. This crude oil is further refined into gasoline, diesel oil, and fuel oil, among others, thus the fall in oil prices in previous months, and resulting in the temporary easing of retail pump prices.

However, it should be emphasized that the high inflation environment in the country today is already due to second-round effects, which we wrote about here.

These second-round effects resulted from the upsurge in energy prices from March onwards, which means that the recent slowdown in oil prices would not necessarily translate to substantially lower inflation prints, especially since we expect low oil prices to be only temporary.

This is evidenced by diesel, kerosene, and gasoline price hikes implemented by fuel companies starting August 29, coupled with new jeepney fare hikes this September.

Despite the volatility, we expect oil prices to rebound and push inflation up towards yearend. Any fall in oil prices due to reduced demand will likely be offset by OPEC+ production cuts. Thus, the country’s inflation will likely remain at elevated levels, peaking at around the 4th quarter of this year as the winter season hits.

ANNA ISABELLE “BEA” LEJANO is a Research & Business Analytics Officer at Metrobank, in charge of the bank’s research on the macroeconomy and the banking industry. She obtained her Bachelor’s degree in Business Economics from the University of the Philippines School of Economics and is currently taking up her Master’s in Economics degree at the Ateneo de Manila University. She cannot function without coffee.

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Equities 4 MIN READ

Stock Market Weekly: Sideways trading amid key local data releases

August inflation data and fuel price rollbacks will be on every investor’s mind this week. Sideways trading is expected.

September 5, 2022By First Metro Securities Research

WHAT HAPPENED LAST WEEK

The Philippine Stock Exchange index (PSEi) closed 0.89% lower week-on-week at 6,692.65 (down 59.85 points). The local market tracked the decline in global markets at the start of the week as investors considered US Fed Chair Powell’s speech and as funds complied with the changes in the MSCI indices.

Losses were pared mid-week as foreigners turned net buyers on Thursday, ending their net selling streak from the past seven trading sessions. Investors also weighed the uptick in the Philippines’ August 2022 Manufacturing Purchasing Managers’ Index (PMI) at 51.2 (July 2022: 50.8) and the announcement that Megawide (MWIDE) and GAIBV sold their shares in GMR-Megawide Cebu Airport Corporation (GMCAC), the developer and operator of the award-winning Mactan Cebu International Airport, to Aboitiz InfraCapital, Inc. (AIC).

Top index performers were Jollibee Foods Corp. (JFC) which was up 3.7%, GT Capital (GTCAP) up 3.2%, and Ayala Corp.) up 2.6%. Index laggards were AC Energy (ACEN) down 5.0%, Megawide (MEG) down 4.3%, and Converge (CNVRG) down 3.9%. The index breadth was negative with nine gainers versus 20 losers. The average daily turnover value was PHP 5.9 billion. Foreigners were net sellers by PHP 126.9 million.

WHAT TO EXPECT THIS WEEK

The market is expected to trade sideways as investors await local key data releases, including the August 2022 inflation print (consensus estimate is 6.4%, while BSP forecast is 5.9% to 6.7%, target range at 2% to 4%). Fuel price rollbacks are also expected this week as gasoline prices may fall by PHP 2.60 to PHP 2.90 per liter, diesel prices by PHP 1.60 to P1.90 per liter, and kerosene prices by PHP 1.80 to PHP 2.00 per liter.

STOCK PICKS FOR THE WEEK

AyalaLand Logistics Holdings Corp. (ALLHC) — BUY

ALLHC formed a head and shoulders bottom, an intermediate-term bullish pattern. According to Technical Insight, our automated chart pattern recognition program, the measured price target after ALLHC broke out if its head and shoulders bottom pattern is PHP 3.90 to PHP 4.00. Accumulating ALLHC on pullbacks until PHP 3.50 is advisable. Set stop limit orders below PHP 3.35 and take profits at around PHP 3.90 to PHP 4.00.

SSI Group, Inc. (SSI) — BUY

SSI should continue to benefit from easing mobility restrictions and the higher mall foot traffic. SSI is also well-positioned to capture the rebound in discretionary spending given its target market. As for price action, SSI is showing signs of bottoming out. The stock is also trading above its key moving averages (50-day, 100-day, and 200-day averages). However, price action will only be clearly bullish once the counter breaks above PHP 1.65 and its 2020 high of PHP 1.88. Accumulating SSI once it breaks above PHP 1.65 is advisable. Further accumulate once SSI trades above PHP 1.88. Set stop limit orders below PHP 1.50 and take profits at around PHP 2.00 to PHP 2.35.

Pilipinas Shell Petroleum Corp. (SHLPH) — BUY

SHLPH recently broke out of its short-term range, with a huge volume, from a five-month resistance. SHLPH’s recent breakout signals a possible upward move in the coming weeks. Currently, SHLPH is consolidating at the PHP 20.0/PHP 21.0 levels and trading above all its key moving averages (20-day, 50-day, 100-day, and 200-day MAs), with the 20-day MA serving as the immediate support. Should the counter manage to consolidate above the breakout area, another breakout attempt at PHP 24.0 is possible. Regarding fundamentals, SHLPH ended the first half of 2022 with a core net income of PHP 7.8 billion, more than triple its first half 2021 earnings at PHP 2.2 billion, enabling the company to resume its dividend payout program after three years from its last declaration, with ex-date scheduled August 22, 2022. Accumulating SHLPH at around PHP 20.0/ PHP 20.5 is recommended. Set cut loss below PHP 18.75 and begin taking profits at PHP 24.0/PHP 24.15.

PSEi TECHNICAL ANALYSIS

Resistance: 6,900/7,200

Support: 6,400/100-day moving average (6,566)

The PSEi pulled back anew last week after failing to break above its 200-day moving average (MA) a couple of weeks ago. On a positive note, the market was able to find support at its 100-day MA at around 6,566. It is crucial for the market to stay above the 100-day MA for the ongoing bullish reversal to resume.

TRADING PLAN

Slowly accumulate at current levels until the 100-day MA (currently at 6,566). Set tight stops below 6,400.

KEY DATA RELEASES

Tuesday, September 6, 2022
– Philippine Consumer Price Index (CPI) year-on-year for August 2022 (consensus estimate is 6.4%, while actual for July 2022 was 6.4%)

Thursday, September 8, 2022
– Philippine unemployment rate for July 2022 (actual for July 2022 was 6.0%)

Friday, September 9, 2022
– Philippine exports, year-on-year, for July 2022 (consensus estimate is 2.4%, while actual for June 2022 was 1.0%)
– Philippine imports, year-on-year, for July 2022 (consensus estimate is 24.3%, while actual for June 2022 was 26%)

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